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Speculative attacks and currency crises: The Mexican experience

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  • Inci Ötker
  • Ceyla Pazarbaşioĝlu

Abstract

By using data from the Mexican economy, this paper estimates a speculative attack model of currency crises in order to identify the role of macroeconomic fundamentals and early warning signals of a potential currency crisis. A deterioration in fundamentals appears to generate high one-step-ahead probabilities for the observed regime changes during the sample period 1982–1994. Particularly, foreign reserve losses, expansionary output, monetary and fiscal policies, an increase in inflation differentials and the share of short-term foreign currency-indexed debt, and an appreciation of the real exchange rate appear to have contributed to the speculative pressures and the associated regime changes. Copyright Kluwer Academic Publishers 1996

Suggested Citation

  • Inci Ötker & Ceyla Pazarbaşioĝlu, 1996. "Speculative attacks and currency crises: The Mexican experience," Open Economies Review, Springer, vol. 7(1), pages 535-552, March.
    • Handle: RePEc:kap:openec:v:7:y:1996:i:1:p:535-552
    DOI: 10.1007/BF01886212
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    References listed on IDEAS

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    1. Goldberg, Linda S., 1991. "Collapsing exchange rate regimes: shocks and biases," Journal of International Money and Finance, Elsevier, vol. 10(2), pages 252-263, June.
    2. Pierre-Richard Agénor & Jagdeep S. Bhandari & Robert P. Flood, 1992. "Speculative Attacks and Models of Balance of Payments Crises," IMF Staff Papers, Palgrave Macmillan, vol. 39(2), pages 357-394, June.
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    5. Edin, Per-Anders & Vredin, Anders, 1993. "Devaluation Risk in Target Zones: Evidence from the Nordic Countries," Economic Journal, Royal Economic Society, vol. 103(416), pages 161-175, January.
    6. Grilli, Vittorio, 1990. "Managing exchange rate crises: evidence from the 1890s," Journal of International Money and Finance, Elsevier, vol. 9(3), pages 258-275, September.
    7. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-325, August.
    8. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
    9. Blackburn, Keith & Sola, Martin, 1993. "Speculative Currency Attacks and Balance of Payments Crises," Journal of Economic Surveys, Wiley Blackwell, vol. 7(2), pages 119-144, June.
    10. Sachs, Jeffrey & Tornell, Aaron & Velasco, Andres, 1995. "The Collapse of the Mexican Peso: What Have We Learned?," Working Papers 95-22, C.V. Starr Center for Applied Economics, New York University.
    11. Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x, April.
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    Citations

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    Cited by:

    1. Luiz Carlos Bresser-Pereira & Lauro Gonzalez & Cláudio Lucinda, 2008. "Crises financeiras nos anos 1990 e poupança externa [Financial crises of the 1990s and current account deficits]," Nova Economia, Economics Department, Universidade Federal de Minas Gerais (Brazil), vol. 18(3), pages 327-357, September.
    2. Murray, John & Schembri, Lawrence & St-Amant, Pierre, 2003. "Revisiting the case for flexible exchange rates in North America," The North American Journal of Economics and Finance, Elsevier, vol. 14(2), pages 207-240, August.
    3. William R. Melick, 1996. "Estimation of speculative attack models: Mexico yet again," BIS Working Papers 36, Bank for International Settlements.
    4. Lin, Chin-Shien & Khan, Haider A. & Chang, Ruei-Yuan & Wang, Ying-Chieh, 2008. "A new approach to modeling early warning systems for currency crises: Can a machine-learning fuzzy expert system predict the currency crises effectively?," Journal of International Money and Finance, Elsevier, vol. 27(7), pages 1098-1121, November.
    5. Schnatz, Bernd, 1998. "Macroeconomic determinants of currency turbulences in emerging markets," Discussion Paper Series 1: Economic Studies 1998,03e, Deutsche Bundesbank.
    6. Osakwe, Patrick N. & Schembri, Lawrence L., 2002. "Real effects of collapsing exchange rate regimes: an application to Mexico," Journal of International Economics, Elsevier, vol. 57(2), pages 299-325, August.
    7. Pazarbasioglu, Ceyla & Otker, Inci, 1997. "Likelihood versus timing of speculative attacks: A case study of Mexico," European Economic Review, Elsevier, vol. 41(3-5), pages 837-845, April.
    8. Ahec Šonje, Amina & Babić, Ante, 2002. "Measuring and predicting currency disturbances in Croatia: the “signals” approach," MPRA Paper 83137, University Library of Munich, Germany, revised Apr 2002.
    9. Bernd Schnatz, 2000. "Speculative attacks in emerging markets: The role of macroeconomic fundamentals," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 35(2), pages 81-89, March.
    10. Ahec Šonje, Amina, 1999. "Leading Indicators of Currency and Banking Crises: Croatia and the World," MPRA Paper 82574, University Library of Munich, Germany.
    11. Sell, Friedrich L., 1999. "Risiken für die Emerging Markets in Mittel- und Osteuropa vor dem Hintergrund der Erfahrungen Thailands, Mexikos und Tschechiens," Working Papers in Economics 1999,3, Bundeswehr University Munich, Economic Research Group.
    12. Otker, Inci & Pazarbasioglu, Ceyla, 1997. "Speculative attacks and macroeconomic fundamentals: evidence from some European currencies," European Economic Review, Elsevier, vol. 41(3-5), pages 847-860, April.
    13. Brana, Sophie & Chenaf-Nicet, Dalila, 2001. "Indicateurs avancés de crise de change : un examen critique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 77(4), pages 569-592, décembre.
    14. Ahec Šonje, Amina & Babić, Ante & Mlinarević, Katarina, 2003. "Determinants of currency disturbances in transition economies of Central and Eastern Europe," MPRA Paper 83140, University Library of Munich, Germany, revised Mar 2003.
    15. Mr. Thomson Fontaine, 2005. "Currency Crises in Developed and Emerging Market Economies: A Comparative Empirical Treatment," IMF Working Papers 2005/013, International Monetary Fund.

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    More about this item

    Keywords

    Exchange rates; speculative attacks; economic fundamentals; Mexico; B22; S31; F33;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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